India’s largest real estate company, DLF Ltd, said on 02nd july that its board of directors would meet on July 10, to consider and approve a buy-back of equity shares. The buy-back proposal comes at a time when the company has seen sharp erosion in its share price over the past few weeks.

The announcement lifted the sentiment of the stock on 02nd July. It was ruling at all-time low of Rs 350.30 on the BSE, but ended the day with a gain of 15 % at Rs 423.95 against 01st July closing price of Rs 368.40.

DLF  promoted by billionaire Mr K.P. Singh  had debuted on the Bombay Stock Exchange (BSE) in July last year at Rs 582 per share, almost 11 % higher than the issue price of Rs 525 per share. However, the stock value has eroded since the start of 2008, after it opened the year at Rs 1,055, it reached an all-time high of Rs 1,225 (on January 15, 2008), and a low of Rs 350.30 on 02nd July.

“The shares today are at a level lower than the intrinsic value of the company. The company wants to give a signal to its shareholders and the market that it will take the necessary steps to ensure that the stock is quoting at a fair value. The company is concerned that the stock is quoting below the issue price,” a DLF official said.

However, the company has not specified the size of the proposed buyback or its price. Sources said that the company was likely to consider an open market route for the buyback.

At present, the public holding in the company is pegged at about 12 %. The company has cash of about Rs 2,000 crore on its balance sheet, sources pointed out.

The real estate sector has been at the receiving end of the bourses following the increase in interest rate and on firm inflation numbers.

According to Enam Securities, “Given the falling demand/capital values, project sales/internal accruals falling short of funding requirement, more pain is expected in the near term. It is time to tread cautiously on this sector, the report added.

“Due to rising interest rates and property prices in the last one year, there has been decline in the transaction volumes in the residential side. Prospective buyers are now waiting on the sidelines for the property prices to correct. In the wake of increasing interest rate scenario, we are increasing our discounting rate assumption for the real estate companies under our coverage,” said a recent Emkay report.